UPDATE 2-U.S., beer giant InBev settle dispute over Modelo buy

WASHINGTON, April 19 (Reuters) - The U.S. Justice Department
and Anheuser-Busch InBev have agreed to conditions that
will allow the beer giant to expand its stake in Mexico's Grupo
Modelo, according to court documents and company
statements issued on Friday.

The pact would settle a lawsuit filed by the department on
Jan. 31 aimed at stopping AB InBev, the world's largest brewer
with some 200 brands, from buying the 50 percent of Modelo it
does not already own for $20.1 billion.

AB InBev will be required to sell the Piedras Negras brewery
in Mexico that makes Corona and other Modelo brand beers for the
U.S. market. It also requires the purchaser, Constellation
Brands, to expand the brewery so that it can make at
least 20 million hectoliters of beer by Dec. 31, 2016.

The agreement announced on Friday closely tracks a February
revision of the transaction to meet U.S. antitrust objections.
AB InBev knew early on that the Justice Department would balk at
allowing it to expand its already large U.S. presence.

U.S. wine giant Constellation, in addition to the brewery
and U.S. brand rights, will also buy AB InBev's 50 percent share
of Modelo's U.S. distributor, Crown Imports, becoming the third
largest U.S. beer producer after AB InBev and MillerCoors with
its $4.75 billion segment of the deal.

The head of the Justice Department's Antitrust Division,
Bill Baer, said Constellation would be a "formidable" rival to
AB InBev and thus prevent price increases to consumers.

But AB InBev comes out a winner because it will sell Corona
and other Modelo brand beers in Mexico, the world's fourth
largest market in terms of profit generated, and elsewhere
outside the United States, which was the company's original
goal.

"This is a positive step in the right direction for ABI,"
said Jefferies analyst Dirk Van Vlaanderen in a note which
estimated that the Modelo buy would add 10 percent to earnings.

AB InBev shares closed up 1.5 percent at 75.60 euros in
Europe. They traded about 0.7 percent higher before the
announcement. Constellation stock was up 1.4 percent to $48 in
Friday afternoon trading in New York.

BEER EVERYWHERE BUT FEW BREWERS

Despite a huge array of beers on store shelves, the U.S.
beer market is dominated by two big players.

AB InBev, formed in 2008 when InBev bought iconic U.S.
company Anheuser Busch, was the top U.S. brewer with 47 percent
of the U.S. beer market going into the Modelo deal.

AB InBev sells 200 brands ranging from big names like
Budweiser and Stella Artois to craft-style beers like Shock Top
and Goose Island. The No. 2 U.S. player is MillerCoors, a joint
venture between SABMiller Plc and Molson Coors Brewing
Co.

AB InBev, in announcing the deal in June last year, had said
that it would sell its 50 percent share of Modelo's U.S.
distributor, Crown Imports, to Constellation Brands.

The Justice Department said that was inadequate and sued to
stop the deal. AB InBev sweetened the offer in February by
offering to sell the Piedras Negras plant to Constellation.

The final agreement adds Constellation as a defendant to the
settlement with the Justice Department. This means that pledges
that Constellation makes to the court about expanding the plant
to make it big enough to serve the U.S. market will be legally
binding.

Constellation Brands Chief Executive Rob Sands said that
buying the rest of Modelo distributor Crown represented "a
significant milestone for Constellation as the most
transformational event in the history of our 68-year-old
company."